If you have been reading Total Money Makoever by Dave Ramsey we recently started Chapter 7 in the Dave Ramsey - Total Money Makeover Facebook group.
Okay time for the exciting part! Paying off your debt with The Debt Snowball!
So how does the debt snowball work? Once you have your baby step One $1000 in the bank you pay off the account with the lowest balance first:
1. Create a list of all of your debts: credit cards, car loans, student loans, mortgages, etc… (Note: You probably need to exclude your mortgage from the list until you have the other debts paid off)
2. Next to each one write down the total balance owed.
3. Re-order these from smallest to largest debts (use Excel to make this simpler.)
4. Pay the minimum payment on all of the debts – except the smallest one.
5. Put every extra dollar you can find towards paying off that smallest debt. (For an example let's say we have the following debt. We have $125 to put towards our first debt assuming we pay the minimum payments on all of our other debts. See below!)
6. Celebrate like crazy when you get that first debt paid off.
7. Take the amount you were paying towards the first debt and put towards the next smallest debt. Do this until this next one is paid off. (Now we have $175 to put towards our second debt assuming we pay the minimum payments on all of our other debts. $25 minimum payment plus the $150 from our original payment on Credit Card 1. See below!)
8. Celebrate again!
9. Continue this process until each one is paid off!
2. Next to each one write down the total balance owed.
3. Re-order these from smallest to largest debts (use Excel to make this simpler.)
4. Pay the minimum payment on all of the debts – except the smallest one.
5. Put every extra dollar you can find towards paying off that smallest debt. (For an example let's say we have the following debt. We have $125 to put towards our first debt assuming we pay the minimum payments on all of our other debts. See below!)
6. Celebrate like crazy when you get that first debt paid off.
7. Take the amount you were paying towards the first debt and put towards the next smallest debt. Do this until this next one is paid off. (Now we have $175 to put towards our second debt assuming we pay the minimum payments on all of our other debts. $25 minimum payment plus the $150 from our original payment on Credit Card 1. See below!)
8. Celebrate again!
9. Continue this process until each one is paid off!
Of note if you ever use your $1000 fund you need to pause your debt snowball or debt reduction. Then get your emergency fund back up to $1000. Then continue with your snowball.
The reasoning for using this method is to get small wins. Money is emotional. A few small wins builds momentum and motivates people to keep going!
There are other ways out there such as paying the highest interest first (known as the debt Avalanche Method). We will be using and promoting the Debt Snowball (lowest balance first)in this group. Small wins build momentum! But whatever you decide knock out that debt!
Was this helpful? Which method works best for you and your family? Leave a comment!
Source I used.
Was this helpful? Which method works best for you and your family? Leave a comment!
Source I used.
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